BY JAMES E. SHORT AND STEVE TODD
In 2016, Microsoft Corp. acquired the online profes- sional network LinkedIn
Corp. for $26.2 billion. Why
did Microsoft consider LinkedIn
to be so valuable? And how
much of the price paid was
for LinkedIn’s user data — as
opposed to its other assets?
Globally, LinkedIn had 433
million registered users and
approximately 100 million
active users per month prior
to the acquisition. Simple
arithmetic tells us that
Microsoft paid about $260
per monthly active user.

Did Microsoft pay a reasonable price for the LinkedIn user
data? Microsoft must have
thought so — and LinkedIn
agreed. But the deal generated
scrutiny from the rating agency
Moody’s Investors Service Inc.,
which conducted a review of
Microsoft’s credit rating after
the deal was announced.
What can be learned from the
Microsoft–LinkedIn transaction about the valuation of user
data? How can we determine if
Microsoft — or any acquirer —
paid a reasonable price?

The answers to these questions are not clear. But the
subject is growing increasingly
relevant as companies collect
and analyze ever more data.

Indeed, the multibillion-dollardeal between Microsoft andLinkedIn is just one recentexample of data valuationcoming to the fore. Anotherexample occurred duringthe Chapter 11 bankruptcyproceedings of Caesars Enter-tainment Operating Corp.Inc., a subsidiary of the casinogaming company Caesars En-tertainment Corp. One area ofconflict was the data in Cae-sars’ Total Rewards customerloyalty program; some credi-tors argued that the TotalRewards program data wasworth $1 billion, making it,according to a Wall StreetJournal article, “the mostvaluable asset in the bitterbankruptcy feud at CaesarsEntertainment Corp.” A 2016report by a bankruptcy courtexaminer on the case notedinstances where sold-off Cae-sars properties — having lostaccess to the customer analyt-ics in the Total Rewardsdatabase — suffered a declinein earnings. But the reportalso observed that it might bedifficult to sell the Total Re-wards system to incorporate itinto another company’s loy-alty program. Although theTotal Rewards system wasCaesars’ most valuable asset,its value to an outside partywas an open question.

As these examples illustrate,
there is no formula for placing
a precise price tag on data. But
in both of these cases, there
were parties who believed the
data to be worth hundreds of
millions of dollars.

Exploring DataValuation

To research data valuation,
we conducted interviews and
collected secondary data on
information activities in 36
companies and nonprofit organizations in North America
and Europe. Most had annual
revenues greater than $1 billion. They represented a wide
range of industry sectors,
including retail, health care,
entertainment, manufacturing, transportation, and
government.

Although our focus was
on data value, we found that
most of the organizations in
our study were focused instead on the challenges of
storing, protecting, accessing,
and analyzing massive
amounts of data — efforts
for which the information
technology (IT) function is
primarily responsible. While
the IT functions were highly